MMC’s Retro buy to replenish jobs

The proposed acquisition affords MMC a pathway for a steady flow of projects beyond 2023, says MIDF analyst


MMC Corp Bhd’s proposal to acquire a 50% stake in Retro Highland Sdn Bhd from Tradewinds Corp Bhd is viewed as a play to replenish its construction orderbook for residential and commercial buildings.

MIDF Amanah Investment Bank Bhd analyst Ummar Fitri said the proposed acquisition affords MMC, via a partnership with SP Setia Bhd, a pathway for a steady flow of projects beyond 2023. Retro’s other 50% shareholder is SP Setia.

MMC’s total outstanding orderbook currently stands at RM2.95 billion, with the Mass Rapid Transit Line 2 (MRT2) being its biggest project with RM2.5 billion worth of remaining work. Work on the MRT2, also known as the Putrajaya Line, is expected to be completed in the first quarter of the calendar year 2023 (1QCY23).

The balance of RM450 million worth of orderbook is scattered across multiple small projects such as the Langat Sewerage Project and Sungai Pulai Bridge in Johor.

“Management guided that replenishment is on its way as they are bidding circa RM5 billion worth of contracts, which includes projects related to water treatment plant, gas pipelines, jetty expansion, Putrajaya rail and Kuala Lumpur International Airport projects.

“This RM5 billion estimate excludes the potential job win from MRT3, a mega infrastructure project that MMC is keen to be part of.

“In light of this, we view the acquisition of Retro as mildly favourable, given that there is certain urgency for the management to enhance its orderbook visibility past FY23,” Ummar said in a note yesterday.

MIDF maintained its ‘Buy’ call on the counter, with an unchanged target price of RM1.30.

“We believe MMC is a ‘no-brainer’ picking for recovery stock play. We postulate that with equity market buoyed by vaccine sentiment and recovery expectation, MMC is ripe for value revision as the group has proven to be resilient amid the pandemic,” Ummar said.

AmInvestment Bank Bhd (AmInvest) in a separate report said it is mildly positive on MMC’s Retro deal as it allows the conglomerate to effectively gain entry into a developer that has locked in a decent deal with the Kuala Lumpur City Hall (DBKL).

“We believe the project on the 77.8-acre (31.48ha) land in Cheras, KL, with an estimated gross development value of RM16 billion could potentially do well, at least over the long term, given the huge population catchment in the surrounding areas,” it said.

Retro has been appointed by DBKL to undertake the planning, design, construction, completion and commissioning of a project known as Quality Sustainable People Housing (QSPH) for urban renewal development.

The QSPH project is aimed to replace existing developments known as Sri Johor, Sri Pulau Pinang, Sri Melaka and Taman Ikan Emas located in Bandar Tun Razak.

In consideration, Retro will be awarded with 77.8 acres of leasehold land in Cheras, which Retro is entitled to develop a mixeduse development of residential and commercial units.

AmInvest said it is not perturbed by Retro’s net losses of RM300,000, RM5 million and RM600,000 in FY17/FY18/FY19 respectively, as earnings momentum is expected to pick up once it starts to launch products on the 77.8-acre land.

“We also take comfort of the fact that at RM250 million, the valuations of the 50% stake and shareholder’s loan fall within the RM233 million to RM260 million valuations by independent valuers,” it said.

The research house maintained its ‘Buy’ call on MMC with a fair value of RM1.51.

AmInvest expects the acquisition to increase MMC’s already high net debt and gearing of RM9.3 billion and 0.9 time respectively, as at Dec 31, 2020, to RM9.5 billion and 0.93 time.

MMC, in a bourse filing on Monday, announced to acquire a 50% equity interest and RM55 million of shareholder’s loan in Retro from Tradewinds with a cash consideration of RM250 million to be completed by 3Q21.